Broad Market Tone: - Advance/Decline Line: Lower
- Sector Performance: Almost Every Sector Declining
- Volume: Below Average
- Market Leading Stocks: Performing In Line
Equity Investor Angst: - VIX 22.14 +4.29%
- ISE Sentiment Index 74.0 -44.36%
- Total Put/Call .83 -12.63%
- NYSE Arms 1.50 +59.43%
Credit Investor Angst:- North American Investment Grade CDS Index 123.96 +2.79%
- European Financial Sector CDS Index 286.99 +2.57%
- Western Europe Sovereign Debt CDS Index 321.40 -.03%
- Emerging Market CDS Index 310.42 +2.03%
- 2-Year Swap Spread 30.0 -1.25 basis points
- TED Spread 39.25 +.5 basis point
- 3-Month EUR/USD Cross-Currency Basis Swap -52.25 -.5 basis point
Economic Gauges:- 3-Month T-Bill Yield .08% unch.
- Yield Curve 131.0 -4 basis points
- China Import Iron Ore Spot $132.30/Metric Tonne +.68%
- Citi US Economic Surprise Index -49.40 +.7 point
- 10-Year TIPS Spread 2.12 -2 basis points
Overseas Futures: - Nikkei Futures: Indicating a -120 open in Japan
- DAX Futures: Indicating -7 open in Germany
Portfolio:
- Slightly Higher: On gains in my index hedges
- Disclosed Trades: Added to my (IWM)/(QQQ) hedges
- Market Exposure: Moved to 25% Net Long
BOTTOM LINE: Today's overall market action is bearish as the S&P 500 reverses a morning gap higher on rising Eurozone debt angst, large stock reversals lower in Spain/Italy, financial/tech sector weakness, less US economic optimism and rising global growth fears. On the positive side, Road & Rail, Utility, Telecom, Drug and Tobacco shares are flat-to-higher on the day. Copper is gaining +1.3% and Oil is falling -2.2%. Major Asian indices rose around +1.5% overnight, led by a +2.4% gain in Hong Kong. India was a notable underperformer, falling -.3%. On the negative side, Coal, Oil Tanker, Steel, Computer, Disk Drive, Networking, HMO, Homebuilding and Airline shares are under significant pressure, falling more than -2.0%
. Cyclical and Small-cap shares have traded poorly throughout the day. The financial/tech sectors have also underperformed. Lumber is falling -.6% and Gold is gaining +.3%. Major European indices are falling around -.5%, led lower by a -2.8% decline in Italy. Spanish and Italian equities gapped substantially higher this morning and fell throughout the day, finishing lower and at session lows. The Bloomberg European Bank Financial Services Index is also falling -.6% after an initial gap higher. The Germany sovereign cds is rising +.6% to 108.42 bps
(+6.02% in 5 days to the highest since early Jan.). The France sovereign cds is gaining +.75% to 213.76 bps, the Spain sovereign cds is rising 1.3% to 594.67 bps, the Italy sovereign cds is gaining +1.8% to 553.0 bps and the Brazil sovereign cds is gaining +1.0% to 164.06 bps. The Italian/German 10Y Yld Spread is rising +6.4% to 472.67 bps. Moreover, the European Investment Grade CDS Index is gaining +1.7% to 179.30 bps.
US Rail Traffic continues to soften.
The Philly Fed ADS Real-Time Business Conditions Index continues to trend lower from its late-December peak.
Moreover, the Citi US Economic Surprise Index has fallen back to early-Sept. levels. Lumber is -4.0% since its Dec. 29th high despite improving sentiment towards homebuilders and the broad equity rally ytd. Moreover, the weekly MBA Home Purchase Applications Index has been around the same level since May 2010 despite expectations for a strong spring home selling season. The Baltic Dry Index has plunged around -60.0% from its Oct. 14th high and is now down around -50.0% ytd. China Iron Ore Spot has plunged -27.0% since Sept. 7th of last year. Shanghai Copper Inventories have risen +157.0% ytd.
The CRB Commodities Index is now technically in a bear market, having declined -26.5% since May 2nd of last year.
Overall, recent credit gauge deterioration remains a big worry as most key sovereign cds remain technically strong. The euro currency is reversing morning gains and continues to trade poorly. Oil is oversold, but trades very heavy despite China stimulus hopes and recent stock gains. As well, the 10Y continues to trade very well with the yield falling -4 bps to 1.59% despite the Eurozone news.
I still believe the level of complacency among US investors regarding the rapidly deteriorating situation in Europe is fairly high. Europe’s kick-the-can smoke-n-mirrors “solutions” are resulting in less and less positive impact and it appears to me that investors are just beginning to sense that these solutions will eventually lead to an even greater escalation in the debt crisis. The facts remain that a country can't solve a debt crisis with more debt and Europe is not making the necessary reforms to become more competitive and grow(France actually moving backwards), in my opinion. As well,
the European debt crisis is really beginning to bite emerging market economies now, which will further pressure exports from the region and further raise the odds of more sovereign/bank downgrades.
As well, the "US fiscal cliff "will become more and more of a focus for investors as the year progresses. There is too much uncertainty on the horizon to conclude a durable stock market low is in place. For this year's equity advance to regain traction, I would expect to see a resumption in European credit gauge improvement, a subsiding of hard-landing fears in key emerging markets, a rising 10-year yield, better volume, stable-to-lower energy prices, a US "fiscal cliff" solution and higher-quality stock market leadership. I expect US stocks to trade modestly lower into the close from current levels on rising Eurozone debt angst, rising global growth fears, less US economic optimism, large reversals lower in Spanish/Italian equities, financial/tech sector weakness, technical selling and more shorting.
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